Accord calls for two rounds of cuts

WASHINGTON -- U.S. President Barack Obama late Sunday announced a deal with congressional leaders to raise the legal level of U.S. debt and avoid a potentially catastrophic default.

Here are details of the plan, which requires approval of the U.S. Congress where a number of lawmakers have voiced concerns:

— The Debt Ceiling. The deal would authorize an increase in the debt limit by at least US$2.1 trillion. A senior administration official said that the level was enough to last until 2013, meaning it will not require action during in 2012 — a presidential election year.

— First Round of Spending Cuts. Immediately authorizes spending cuts of more than US$900 billion to take place over the next decade. A White House official said the figure would be between US$900 billion and US$1 trillion, while House Speaker John Boehner's office gave the figure of US$917 billion.

The White House said the cuts would be in the form of caps on discretionary spending — funding that is authorized at will by Congress — and not from entitlements such as Social Security and the Medicare health care program for the elderly.

— Second Round of Spending Cuts. The package sets up a special committee in Congress — to be evenly divided between members of Obama's Democratic Party and Boehner's Republican Party — that would find US$1.5 trillion in further cuts from all areas. The committee is required to come up with proposals by Nov. 23. Both the House of Representatives and Senate would then vote on those proposals by Dec. 23, in an up-or-down decision in which lawmakers would not be able to make amendments.

If Congress does not enact the cuts, then automatic cuts of the same amount will come into force divided between military and non-military spending but not touching Medicare and Social Security, according to the White House.

— Defense Spending. The package would cut US$350 billion in defense spending over the next 10 years as part of the first batch of cuts. A White House official said that Obama in principle wanted half of savings to come from defense spending but that he was not formally proposing so for the second round of cuts.

The U.S. military budget last year was around US$700 billion, by far the largest in the world, but the figure is certain to come down as the United States winds down commitments in Iraq and Afghanistan. Some Republicans have argued against steep defense cuts, saying there is insufficient thought on the strategic implications.

— Taxes. Boehner highlighted that the package would not include any tax hikes. Republican lawmakers have been firm on the issue, while some Democrats argue that the United States also needs to increase revenue in such a large deal.

The White House said that Obama could still fight to restore tax rates on wealthy Americans — bringing in nearly US$1 trillion in revenue. Obama's Republican predecessor George W. Bush lowered the taxes on the wealthy but the cuts are set to expire at the end of 2012.

— Constitutional Amendment. The package calls for Congress to vote by the end of the year on an amendment to the U.S. Constitution that requires a balanced budget, a long-standing proposal of conservative Republicans who say the country must keep its finances in order. If Congress approves the amendment, Obama would be authorized to seek another US$1.5 trillion hike in the debt ceiling.

Many Democrats argue that the amendment is a gimmick that would not make sense in a future crisis. Amending the founding U.S. document is an arduous process, requiring two-thirds votes by both the House of Representatives and Senate and ratification from legislatures of at least 38 of the 50 states.